Controlling Food Costs in Storage and
Issuing
6
OH 6-1
6-1
 Controlling Foodservice Costs
Chapter Learning Objectives
 Describe food storage techniques used to
control theft.
 Explain the first in, first out (FIFO) method of
stock rotation.
 Describe the proper method of taking inventory.
 Describe the various methods of inventory
pricing (valuation).
OH 6-2
Chapter Learning Objectives continued
 Calculate inventory turnover rate and
inventory value.
 Compare physical inventory to
perpetual inventory.
 Calculate a daily food cost.
OH 6-3
Storage Practices Impact Profits
 Spoilage of products
 Theft of products
OH 6-4
Sales Needed to Replace the Value
of Spoiled or Stolen Items
 Assume 5% restaurant net profit
 Assume loss of two steaks @ $7.00 cost each
OH 6-5
Amount
lost
÷
$14.00
÷
Net profit
Additional sales required
=
percentage
to replace lost revenue
0.05
=
$280.00
Controlling Spoilage
 Storage loss from spoilage is usually caused by
carelessness.
 Spoilage loss can be controlled.
 Spoilage is caused by
 Improper product rotation
 Time abuse
 Temperature abuse
OH 6-6
Controlling Spoilage continued
Excellent sanitation practices help minimize
spoilage loss.
OH 6-7
First In First Out (FIFO)
 Use for refrigerated, frozen, and dry products
 Use oldest product first.
 Relies on
 The receiving clerk (to rotate stock properly)
 The person using the product (to choose properly)
 Must be continually monitored by management!
OH 6-8
Dry Storage
OH 6-9
Fresh Fruits and Vegetables
OH 6-10
Eggs and Dairy
OH 6-11
Meat and Poultry
OH 6-12
Fish
OH 6-13
Proper Sanitation Is Key
 Store foods away
from walls and at
least six inches
above the floor.
 Store dry goods in
airtight containers.
 Walls and floors
should be nonporous
and easily cleaned.
OH 6-14
Proper Sanitation Is Key continued
 Rotate stock to minimize spoilage.
 Organize products so they are easily found.
 Label shelves and sealed food containers.
 Include “use by” dates and name labels for all
stored products.
OH 6-15
Controlling Theft
 Keep storage areas locked whenever practical.
 Establish a par stock per shift system for
key ingredients.
 Issue secondary sets of keys on an as-needed
basis only.
OH 6-16
Sample Requisition Form
Large foodservice operations may use a requisition
system to help control theft-related losses.
OH 6-17
Inventory Types
 Physical inventory
 An actual count of inventory items
 Usually taken to obtain information for the
income statement.
 Perpetual inventory
 A count based upon additions to (purchases) and
subtractions from (requisitions) storage
 If records are properly kept, it is always up-to-date.
OH 6-18
Common Inventory Breakdowns
 Meats
 Frozen foods
 Dairy
 Canned foods
 Bakery
 Dry goods
 Produce
OH 6-19
Common Inventory Breakdowns continued
The type of restaurant you manage will help determine the
specific inventory breakdowns best suited for your use.
OH 6-20
Sample Inventory Sheet
OH 6-21
Inventory Valuation Methods
 FIFO
 First in, first out
 Inventory is valued at its most recent (latest) cost.
 Oldest product is used first.
 LIFO
 Last in, first out
 Inventory is valued at the cost of the oldest product.
 Newest product is used first.
OH 6-22
Inventory Valuation Methods continued
 Averaged price method
 Inventory is valued at a composite of all prices paid
for the item.
 Actual price method
 Each inventory item is valued at its original
purchase price.
OH 6-23
Inventory and Cost of Food Sold
 Inventory value is a critical component of the
cost of food sold formula.
+
Opening inventory
Purchases
Total food available
–
OH 6-24
Closing inventory
Cost of food sold
Inventory Turnover Calculation
Step 1 – Calculate average inventory.
(
Opening
+
inventory
Closing
inventory
)
÷
2 =
Average
inventory
Step 2 – Calculate the inventory turnover.
Cost of
food sold
OH 6-25
÷
Average
=
inventory
Inventory
turnover
Daily Food Cost Percent Calculation
Using Perpetual Inventory
Step 1 – Compute daily food cost.
+
–
Requisitions
Transfers in
Transfers out
Daily food cost
Step 2 – Compute food cost percentage.
Daily food
cost
OH 6-26
÷
Daily unit
sales
=
Daily food cost
percentage
How Would You Answer
the Following Questions?
1.
The greatest cause of inventory loss is (theft/poor
buying practices).
2.
The most common product storage method used in
foodservice is (FIFO/LIFO).
3.
The type of inventory that is based upon a theoretical
count is called a
A.
B.
C.
D.
4.
OH 6-27
Breakdown inventory
Requisition inventory
Physical inventory
Perpetual inventory
Daily food cost divided by (unit sales/transfers out of
inventory) equals daily food cost percentage.
Key Term Review
 Actual price method
 Inventory
 Averaged price
 Inventory breakdown
method
 Daily food cost
 Extending
 FIFO method
OH 6-28
 Inventory turnover
 Issuing
Key Term Review continued
 Latest price method
 Physical inventory
 LIFO method
 Requisitions
 Padding
 Time and
 Perpetual Inventory
OH 6-29
temperature control
 Transfer
Chapter Learning Objectives—
What Did You Learn?
 Describe food storage techniques used to
control theft.
 Explain the FIFO method of stock rotation.
 Describe the proper method of taking inventory.
 Describe the various methods of inventory
pricing (valuation).
OH 6-30
Chapter Learning Objectives—
What Did You Learn? continued
 Calculate inventory turnover rate and inventory
value.
 Compare physical inventory to perpetual
inventory.
 Calculate a daily food cost.
OH 6-31